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Capital adequacy issues, liquidity position under BASEL Accords to drive further mergers in Nigeria’s banking in 2022, job losses likely

New account­ing standards which Nigeria’s Central Bank is obligated to implementing in the Year 2022, under the BASEL III Accord, are likely to spur another round of mergers and acquisitions in the banking industry, with associated loss of jobs.

New account­ing standards which Nigeria’s Central Bank is obligated to implementing in the Year 2022, under the BASEL III Accord, are likely to spur another round of mergers and acquisitions in the banking industry, with associated loss of jobs.

From the beginning of the new banking year, banks in the country are expected to begin implementing spe­cific guidelines from Basel III, as put forward by the CBN. The BASEL III guidelines were originally set to kick off in 2020, but the Central Bank of Nigeria, CBN, re­scheduled the implementation given the impact of COVID-19 on the banking sector. ­

The Basel Accords (‘Basel I, II, III’) are sets of regulations for the banking sector estab­lished by the Basel Commit­tee on Banking Supervision (BCBS) which is a committee of banking supervisory au­thorities established by the cen­tral bank governors of various jurisdictions.

The Bank for International Settlement identifies the aims of Basel III, as strengthening the regulation, supervision, and risk manage­ment measures of banks.

Basel III is already opera­tional in some countries, al­though the transition window is open till 2028.

The implementation of Ba­sel III started globally in Janu­ary 2013 and places importance on strong liquidity and capital for financial stability.

On the likelihood of o losses, Anor Anyanwu, a former bank executive director, said, “Though the implementation of Basel III is meant to give us a strong banking sector but there are no way some banks will not be consumed by the implemen­tation and hence, there will be job loss.”

Stephen Iloba, an econo­mist, said, “I think the CBN has been treating issues regard­ing strong banking supervision with kid gloves in the past but now, the apex bank seems to have woken up from slumber with the implementation of the Basel III.

“My sympathy goes to those Nigerians that may lose their jobs due to the backlash of the implementation of the ac­counting standard”.

Under BASEL,  the CBN’ banking supervision would highlight: fortifying capital positions: previously, Nigeria banks classified as interna­tional banks and/or domestic systemically important banks (mostly tier 1) had to meet only a minimum total capital ade­quacy ratio of 15 percent, while national banks met 10 percent. With these new rules, there will be minimum requirements at several levels of capital, and all banks will be required to hold a capital conservation buffer of 1 percent, in the form of com­mon equity capital.

For systemically important banks, an additional 1 percent of common equity capital is required for higher loss absor­bency.

Banks like, Access Bank, GTCO, Zenith Bank, FBNH and UBA would be deemed ‘systematically important.’ The prospective framework will require these banks to have a common equity tier 1 ratio of 12.5 percent and a total capital adequacy ratio of 17 percent.

“Some banks have interna­tional authorization, and will be expected to comply with a minimum Common Equity Tier 1 (CET1) of 11.5 percent and capital adequacy ratio (CAR) of 16 percent. National banks include Wema Bank (not covered), Sterling Bank (not covered) and Stanbic IBTC (the banking subsidiary), and are expected to have a CET1 of 8 percent and CAR of 11 percent.

“One of the CBN’s goals with the new guidelines is to constrain the build-up of excessive on and off-balance sheet leverage by the banks. Going forward, banks will be required to compute leverage ratios, which consider a capital measure (solely tier 1 capital) over an exposure measure (on and off-balance sheet exposures, derivatives, and securities-backed transac­tions). ­

“The minimum for all banks would be 4 percent, but systemically important banks would be required to have a minimum of 5 percent.

“The apex bank is also introducing a liquidity cov­erage measure (LCR), which considers the banks’ stock of high-quality liquid assets compared to their total net cash outflows for 30 days and must be above 100%. The banks will also employ five other monitoring tools for liquidity, which include con­tractual maturity mismatch, concentration of funding, available unencumbered assets, LCR by significant currency and market-related monitoring tools”.

Under Basel III, in the short to medium term, the Ni­gerian banking sector should be equipped with better capi­tal quality, stronger levels of capital and robust liquidity positions.

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